Burnet v. Clark
| Decision Date | 12 December 1932 |
| Docket Number | No. 180,180 |
| Citation | 287 U.S. 410,77 L.Ed. 397,53 S.Ct. 207 |
| Parties | BURNET, Commissioner of Internal Revenue, v. CLARK |
| Court | U.S. Supreme Court |
The Attorney General and Mr. G. A.Youngquist, Asst. Atty. Gen., for petitioner.
Mr. William S. Hammers, of Washington, D.C., for respondent.
Respondent Clark's income tax return for 1921 showed net loss exceeding $17,000; for 1922 net loss of about $5,000. He claimed these should be deducted from gains reported for 1923, under section 204(a) and (b),1 Revenue Act of 1921, c. 136, 42 Stat. 227, 231. The Commissioner of Internal Revenue ruled otherwise, and the Board of Tax Appeals approved. The Court of Appeals, District of Columbia, 61 App.D.C. 217, 59 F.(2d) 1031, reversed the Board's action. The matter is here upon certiorari, 287 U.S. 584, 53 S.Ct. 19, 77 L.Ed. —-.
From 1899 until 1922 respondent was closely connected with the Bowers Southern Dredging Company, which did river and harbor improvement work, dredging, and jetty building. He was majority stockholder, active head, after 1905 president, and devoted himself largely to its affairs. During 1921 and 1922 he was a member of three partnerships similarly engaged and often associated with the Bowers Company. Also he owned and held as investments shares of a number of corporations. He was not in the investment business.
After 1917 the Bowers Company encountered continuous financial difficulties. To protect his interest therein, at sundry undisclosed times respondent indorsed the company's obligations to the banks. In 1921 a creditors' committee took charge, and thereafter respondent conducted the corporate affairs as managing director. A new concern took over the entire assets and business in 1922.
Because of his indorsements, respondent paid $68,000 for the company during 1921. He claimed and was al- lowed to deduct the sum thus lost upon his return for that year. During the same year he also lost $9,500 through sale of the corporation's stock, and in 1922 he sustained a similar loss amounting to $92,500. For both these sums appropriate deductions were permitted.
After considering all the circumstances, the collector held respondent's losses did not result 'from the operation of any trade or business regularly carried on by the taxpayer,' and could not be deducted from gains of succeeding years. The Board of Tax Appeals approved. Among other things, it said:
'In order for the losses here involved to be deductible in determining taxable income for 1923, they must be net losses resulting from the operation of a trade or business regularly carried on by the petitioner and not from isolated and occasional transactions.
'With respect to the loss of $68,000 resulting from the petitioner's endorsement of the Bowers Company notes, he testified that in endorsing the notes he was seeking to protect his investment in its stock. Aside from endorsing an undisclosed number of notes of this company there is nothing in the record to indicate that acting as endorser or guarantor constituted a business or trade with the petitioner. So far as the record shows these were the only notes ever endorsed by the petitioner for the Bowers Company or for any other company or person. From the facts in the case we are of the opinion that the loss did not result from the operation of a trade or business regularly carried on by the petitioner but resulted from isolated or occasional transactions. * * *
'With respect to the remaining losses resulting from the sale of the Bowers Company stock in 1921 and 1922, we do not think the petitioner's ownership of stock in a number of corporations which he held as an investment during 1921 and 1922 or the sale of some of such stock in those years constituted a business or trade regularly carried on by him. As to his being in the investment business, the petitioner testified as follows:
'Since the petitioner was not in the investment business or engaged in the business of a dealer in securities, we think the losses resulting from the sale of the Bowers Company stock in 1921 and 1922 constituted losses arising from occasional or isolated transactions and not from the operation of a business regularly carried on. * * *'
In support of the contrary view, the District Court of Appeals said:
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